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Built to Compete: Canada's Fire & Flower's Strategic Transition to the U.S. Backed by Retail Giant

Fire & Flower is one of Canada’s leading cannabis retailers with a network of more than 80 corporate-owned stores, 28 of which are in the 14 million people Ontario market.

In addition to being licensed to sell cannabis in several provinces, the company has developed best-in-class proprietary retailing technology — HifyreTM digital platform — seamlessly connecting consumers with cannabis products. The advanced retail sales platform leverages data to deliver personalized, effective, consumer and partner engagements.

At Benzinga’s latest cannabis capital conference, Fire & Flower CEO Trevor Fencott discussed the company’s eagerness to bring the brand and its retail technology platform to the U.S.

Competing Where It’s Most Competitive

Fire & Flower has been fighting tooth and nail in Canada and succeeding in this environment. Alberta has 1 store per 8,000 people, which is more competitive than Colorado. Unlike many vertically integrated multistate operators (MSOs) that are fighting over the limited license, oligopoly states, Fencott is taking Fire & Flower’s successful operating model and plans to compete in key established cannabis market states in the U.S.

The company makes the legal transition to the U.S. after it signed a licensing agreement with American Acres. With this agreement, the company will effectively license its store brand, along with its operating system and Hifyre tech to a group of dispensaries located in California, Arizona and Nevada. 

The agreement also gives the company the option to acquire American Acres at a discount in the event of federal legalization or when otherwise permitted by the policies of any stock exchange on which Fire & Flower’s securities are listed for trading.

Fencott believes Fire & Flower’s tech-forward approach is the pillar of retail as product innovation is driving new categories and new consumer demands. And, since product selection in the U.S. is more varied and innovative, a company like Fire & Flower would add immense value.

“The Canadian retail market is very competitive compared to the vertically integrated U.S. MSO model,” said Fencott. “That licensed producer model was not successful. It soaked up a lot of capital, and from a capital markets perspective, we’re suffering from this perceived hangover of Canadian-licensed producers building million square foot facilities that are now shutting down.”

“We are not producers — dedicated retail is different from that. We’ve purpose-built our company to compete in retail, which is customer acquisition and building lifetime customer value.” Fencott concluded, “We spent the last three years honing our model. Along that journey we’ve perfected our tech platform, we’ve got an expansion partner and now we’re taking that step.”

Fire & Flower has a great strategic partner in Circle K, a convenience store giant that has a multibillion-dollar market cap under the company Alimentation Couche-Tard. It has more than 16,000 locations in 25 countries and pulled in $54 billion in revenue last year.

Today, Circle K owns 19.9% of Fire & Flower and through a series of warrants has a path to own up to 50.1% of the company by 2023 while injecting hundreds of millions in growth capital.


This deal provides an opportunity for Fire & Flower to gain a strong footprint in the U.S. and the rest of the world.

In addition to capital, Circle K and Fire & Flower have an increasing number of strategic operational initiatives that demonstrate how the companies can work together to scale. For instance, the companies have a pilot program where small Fire & Flower stores are colocated with Circle K’s, taking advantage of the retail giant’s existing real estate portfolio.

Fencott views the pilot program stores as convenience-oriented distribution nodes that extend Fire & Flower brand experience stores as part of a broader corporate strategy to reimagine the cannabis retail landscape and provide a highly competitive operating model for U.S. market entry.

“Fire & Flower was built from scratch with the sole goal of being the best retailer in cannabis,” said Fencott. “We took all the best practices from successful existing retailers and built a cannabis company around that as opposed to starting a company for the sake of a cannabis license. We did it intentionally. Our organized strategy is going to pay dividends when we enter a competitive market.”

How Fire & Flower’s Valuation Compares with its Competitors

To really understand how well Fire & Flower competes with its competitors, it’s worth noting the massive gap in valuation between the company and its Canadian retail competitors as well as top U.S. MSOs.


Source: ATB Capital Markets and FactSet as of April 8, 2021
screenshot_2021-04-22_at_1.45.45_am.png Source: New Cannabis Ventures and Yahoo Finance as of March 29, 2021

Canadian Retail companies like Cronos, Canopy Growth, and Tilray have enterprise value-to-sales (EV/sales) multiples of 17x, 13x and 12x respectively. 

U.S. MSOs like Curaleaf, Green Thumb Industries, Trulieve, Cresco Labs, Ayr Wellness, and Planet 13 Holdings have enterprise value-to-revenue multiple (EV/R) multiples of 10.1x, 5,6x, 5.2x, 3.3x, 2.6x and 7.9x respectively.

Fire & Flower has an EV/sale and EV/revenue multiple of 1.

This essentially means that the Fire & Flower’s total value (market capitalization, debt, preferred shares, minority interest, and cash and cash equivalents) is the same as the sales it generates. The low ratio positions the company as a low-risk and attractive investment for a retail giant like Circle K.

To learn more about Fire & Flower, you can visit its website here.

Fire & Flower (TSE: FAF) is a partner of Benzinga. The information in this article does not represent the investment advice of Benzinga or its writers.

© 2021 Benzinga does not provide investment advice. All rights

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